Duce630
(DustinK - Thankfull that the hostages made it home after TWO YEARS with Hamas)
1
Trying to not be political on this issue but there is a directive for some government entities to buy $200 Billion of mortgage bonds in an attempt to ease housing costs or mortgage interest rates, I guess. I’m not real clear.
My question, if someone actually understands and is knowledgable about this… how would this actually affect rates or affordability or the economy? Or what is the goal or expected effect economically if I don’t quite have an understanding in the above.
I’m really looking for explanation here, and yes I could ask chat gpt or something but hoping someone can explain it here in an easier to understand way.
Please refrain from discussing the politics of this, I’m trying to understand the economics.
Honestly, the economics say that it won’t do anything to move the needle (i.e., it’s political theater).
The residential real estate mortgage market is valued in the neighborhood of $65 trillion. An infusion of $200 billion isn’t going to move rates by making more capital available because it just isn’t material in that context. In the past, the Fed has done this to provide more access to lending capital to drive rates down, but they’ve invested in the trillions of dollars to do that.
If it’s not for show (which is the most likely goal), then I think the next most-likely goal here is to purchase subprime loans (low-grade) to protect those holders from the rising number of defaults that is probably on the way. It would be kind of a preemptive bailout, assuming he even has the authority to do it (questionable, at best).
Duce630
(DustinK - Thankfull that the hostages made it home after TWO YEARS with Hamas)
3
Yea, I guess I was asking because I wasn’t sure how it would move the needle. However, I’m not knowledgable at all about that.
If the government buys up existing mortgage bonds, this would free up existing lenders to go loan more money. Done at scale and over time, this should have the effect of driving down mortgage interest rates because the market would have more access to capital. BUT this would take time, as dumping that much cash into the market at once could trigger inflationary fears that would drive rates upward.